Carlos Slim, chairman of the Mexican telecom giant,
) and the world's richest man has raised his stakes in America
Movil. Slim has increased his class L shares holding in the
company to 14.4% from 13.7% owned previously. Given a significant
drop in the company's market value due to regulatory changes,
increasing the stakes in the company at this point remains a
strategic move by Slim as it strengthens his ownership.
In addition, Slim's move is also suggestive of the significant
growth prospects within America Movil. The market may react
positively to this news and even help the company to bounce back
after a deep plunge in share value.
In an effort to stall share price decline, America Movil
increased its share repurchase fund by 40 billion pesos ($3.2
billion). The increase in share repurchase also helped the
company to safeguard its market value, which was affected
by the proposed regulatory bill in Mexico. In Mar 2013, Mexican
President Enrique Pena Nieto proposed a new bill highlighting
several measures to reform its telecom and television industry.
The main objective of this bill is to bring more uniformity and
transparency into the sector and curb concentration of power that
lies with predominant players, which dictate market behavior.
However, the proposal has struck the Mexican telecom and
television industry on a discordant note as it unfavorably
targets giant corporations - America Movil and
Grupo Televisa S.A.
). The proposal stresses on the implementation of the asymmetric
regulations that faced severe condemnation by America Movil.
Per the proposal, predominant players that control the
majority of market shares like America Movil, will have to pay
higher mobile termination rates (MTRs) to smaller peers while
receive lesser amounts from them for network interconnection.
Through Telcel and Telmex, America Movil commands about 70%
market share, while the Spanish wireless operator
) controls nearly 22% of the Mexican market share.
Following this ruling, America Movil experienced a significant
decline in its share price that swept away billions of dollars in
its market valuation. Since then, the company has aggressively
followed a share repurchase policy to mend the loss.
However, we believe share buyback and stake increases by
management and shareholders can be a short-term remedy to improve
market position. But America Movil still has to pass through the
litmus test when the new telecom bill comes into action. How the
company survives in the new regulatory environment of Mexico amid
cut-throat competition from players like Telefonica, Grupo
NII Holdings Inc. (
is something to watch out for.
America Movil has a Zacks Rank #3, implying a Hold rating.
AMER MOVIL-ADR (AMX): Free Stock Analysis
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